Financial Inclusion, Universal Banking and Post Offices in Britain

Financial Inclusion, Universal Banking and Post Offices in BritainAuthor(s): J. MidgleySource: Area, Vol. 37, No. 3 (Sep., 2005), pp. 277-285Published by: Wiley on behalf of The Royal Geographical Society (with the Institute of BritishGeographers)Stable URL: http://www.jstor.org/stable/20004461 .

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Area (2005) 37.3, 277-285

Financial inclusion, universal banking and post

offices in Britain

J Midgley School of Geography, Politics and Sociology, University of Newcastle upon Tyne, Newcastle upon Tyne NE1 7RU

Email: [email protected]

Revised manuscript received 1 7 June 2005

The causes and consequences of financial exclusion have become a policy concern in Britain in recent years. This paper analyses policy discourses around financial exclusion and considers the (social and economic) geographical issues surrounding one particular policy response - universal banking services. It examines the policy background which led to the introduction of these services, and the institutional role of the Post Office, before discussing their potential social and spatial consequences.

Key words: Britain, financial exclusion, universal banking, Post Office network

Introduction Economic and social geographies of everyday life continue to be transformed, both materially and symbolically, by important trends in retail banking services at the global and local scale (Larner and Le Heron 2002). De-regulation of financial service markets and resultant restructuring have created new patterns of banking service provision, emphasized by bank closures and branch rationalization in Britain (Leyshon and Thrift 1993 1994 1997), the United States (Pollard 1996), Australia (Argent and Rolley 2000), New Zealand (Larner and Le Heron 2002) and elsewhere.

The withdrawal and rationalization of banking services in Britain has been shaped by an underly ing geography of income and class (Leyshon and

Thrift 1993). This has accentuated social divisions in access to services, reconfiguring broader societal and economic participation within the financial system. Consequently, new social geographies of access - or inclusion - have emerged, represented by what Leyshon and Thrift (1994) call the 'flight to quality' as the retail financial industry focused on its most affluent, profitable customers, and maintained a socio-spatial distance from the least profitable

individuals, groups and communities. As a result, studies of the geographies of financial exclusion have revealed the complex relationships between the retail finance industry and the effects on individual participation and product use (Ford and Rowlingson 1996; Kempson and Whyley 1999). The estimated 8 per cent of UK households (1.9 million households or around 2.8 million adults) who lacked a bank account of any kind during 2002-03 indicates the extent of financial exclusion (HM Treasury 2004). The socio-spatial characteristics commonly associated with financial exclusion of this type include low income households (low wage or welfare dependent), single and lone parent households, social housing tenants and residence within a deprived urban area (Kempson and Whyley 1999).

The relationship between spatial structures and social processes evident within financial exclusion debates reflects the wider constructions of social exclusion found within domestic policy (Social Exclusion Unit 2001). The concept of exclusion is problematic, not only because of its predominant association with economic (labour market) participa tion but also because of its highly moral undertones (Levitas 1998; Sibley 1998; Byrne 1999). Its appro priation within policy discourses is also problematic.

ISSN 0004-0894 ? Royal Geographical Society (with The Institute of British Geographers) 2005



278 Midgley

Policy responses to financial exclusion tend to start from the premise that there are individuals, groups

and communities, possessing the socio-spatial char acteristics identified above, who do not participate within the financial mainstream. Consequently, the focus of policy interventions is constrained by con structions of the excluded.

This paper critically considers national financial exclusion policy and its geographical implications through an analysis of materials from Government and associated financial services industry actors. The paper focuses on the nation-wide introduction of universal banking services in Britain and the role assigned to the Post Office1 in their delivery. The paper argues that the development of universal banking services has been based on an over-simplistic spatial

model of service provision and accessibility, illustrated by the disparate rationales for the future role and provision of the rural and urban post office networks, which fails to recognize the more complex socio economic processes and practices of financial inclusion.

Universal banking: a discourse of inclusion through modernization and transition

Universal banking services were launched in the UK on 1 April 2003, with three stated strategic objectives (Department of Trade and Industry (DTI) 2004a). These were to:

1 'modernise welfare payments (i.e. benefits, pen sions and tax credits) by making payments directly into bank accounts, thus substantially reducing administrative costs and fraud';

2 'increase financial inclusion by ensuring that everyone who wants can open a simple, accessible bank account with its services available over post office counters';

3 'provide a means of generating replacement busi ness for the Post Office network, helping to ensure that it remains viable following the migration of benefits to payments directly into accounts'.

Notably, each objective's motivation and justification appears to have a different focus. This raises questions about the policy's overall coherence, and more importantly how central financial inclusion was to universal banking.

Welfare modernization The modernization of welfare payments formed part of the UK Government's wider welfare reforms

(Department of Social Security 1998). These empha sized greater social contractualism: a changed relationship between citizen and state (stressing the association of welfare rights and entitlements with private responsibilities) and new relationships between the state and market to deliver policy rather than through direct intervention. This approach has had two implications for financial inclusion. First, financial product ownership would be a prerequisite for individuals, as responsible citizens, to provide for their own financial security, with the state providing welfare support as a last resort. Second, the means to inclusion would be achieved through the market (financial industry) rather than through direct state provision. Additionally, modernization would be achieved by introducing automated credit transfers of welfare payments to reduce the costs of administration and fraudulent claims. This was to be achieved by continuing the IT investment begun by the previous government to enable welfare payments to be collected by swipe card, replacing the paper based system of presenting a girocheque or order book at a post office counter. However, subsequent delays and increased costs led to proposals for direct payment transfers into claimants' bank accounts (Performance and Innovation Unit 2000).

Financial inclusion The objective to increase financial inclusion built on the continued development and wider availability of basic bank accounts offered by mainstream financial institutions. Basic bank accounts allow the same banking transactions that are available to current account holders (deposits can be made and direct debits instructed) but other services are restricted, so withdrawals are only permitted if

enough funds are available, debit card availability is limited and chequebooks are never offered (Financial Services Authority (FSA) 2002). Basic accounts have been specifically targeted at those with low incomes or who have poor credit ratings, and contain features that were designed by those excluded from banking (including debt avoidance).

Basic bank accounts were created as a measure to tackle financial exclusion, enabling individuals to 'take the step into banking' (FSA 2002, 1), signifying a policy discourse of enabling inclusive transitions. The continued development and enhanced provision of basic banking services by financial institutions prior to welfare modernization was advocated under the Government's neighbourhood renewal programme,

which explored the 'scope for widening access to



Financial inclusion in Britain 279

financial services' and 'developing a strategy to increase access to financial services for people living in poor neighbourhoods' (HM Treasury 1999, 6). Additional recommendations made to the Treas ury's review of UK banking included, as a priority, the development of basic banking services, specifi cally to customers on low incomes, provided where necessary by government intervention (Cruickshank 2000).

Consequently, the Chancellor invited the banks and the Post Office 'to work together to offer this basic banking service to all' (Brown 2000). This proposal was subsequently endorsed by the Govern ment's Performance and Innovation Unit (PIU) review of the Post Office in its report Counter Revo lution: Modernising the Post Office Network (PIU 2000), which recommended the Post Office develop the concept of a Universal Bank to bring the 'unbanked' into the financial mainstream. Initially, the proposal conceived the state-owned Post Office in partnership with high street banks, jointly creat ing and owning a Universal Bank to provide basic

banking. However, policy preference was to create an institution that 'specialised in providing banking services to people outside the banking mainstream' (PIU 2000, 91). In turn, the banks' 'participation in the Universal Bank would meet their financial exclusion obligations' (PIU 2000, 98). Thus, while policy discourse was advancing transition towards inclusive financial behaviour, it was simultaneously

promoting a socio-economic distinction, reflected by the social and spatial positioning of newly included customers within a specially created institution set apart from the financial mainstream and its customers. The retail banking industry rejected this proposal, arguing that it was neither 'useful nor attractive' with potential for 'stigma' as a 'poor person's bank', and suggested an alternative system of universal banking (Treanor and Bannister 2000, citing British Banking Association Director General).

Policy then shifted towards providing universal banking services via the Post Office network. Universal banking services comprise two strands:

access at post offices to the bank's own basic bank accounts; and the Post Office card account [POCA] - a simple account exclusively for benefit recipients who are either unable or unwilling to open even a basic bank account, allowing benefit claimants to access their benefit in cash at post offices via a Post Office card account instead of an order book or giro. The intention is that this account should be a stepping stone to financial inclusion (i.e. over time benefit

recipients will migrate to using bank accounts pro vided by financial institutions). (DTI 2004a, emphasis added)

In contrast to the earlier universal bank proposal, universal banking services appear socially and spatially advantageous. Welfare recipients are amongst the least likely to participate in the financial

mainstream (Kempson and Whyley 1999) and providing universal banking services at post offices continues the tradition of post office-based welfare payment collection. It also utilizes an institution that exists in areas where mainstream providers have either never located or withdrawn (Leyshon et al. 2004). Nevertheless, the universal banking services proposal required funding from the banking industry totalling f182 million spread over a five-year period (2003-2008) for POCA development, in addition to the industry making basic bank accounts accessible through the Post Office network.

Post Office modernization Expansion into banking services formed part of wider PIU (2000) recommendations for modernizing both the Post Office network and its business, 'maximizing its potential', given the imminent dis

appearance of its main income source - providing welfare payment encashment2 (PIU 2000, 5). The PIU report stressed the apparent suitability of the Post Office in delivering financial inclusion through universal banking. The focus on universal and convenient accessibility to service provision was based on the Post Office network's spatial 'reach'. This utilized a branch network that in 1999, when universal banking was in development, stood at around 18 400 offices in the UK, approximately 4000 more outlets than the combined presence of banks and building societies (PIU 2000, 16). The PIU also reported that both the 'Post Office' brand and institution enjoyed a high level of public trust, and its staff were well respected, a feature fundamental to universal banking proposals (PIU 2000, 72).

The customer base was also vital. Due to the range of services provided by the Post Office, large customer volumes are served from a variety of socio-economic and cultural backgrounds. Conse quently, the Post Office's portrayal both in its own and other policy literature is that of a socially and spatially accessible and inclusive institution. Indeed, its wider social role in sustaining local communities

was seen as crucial: a post office is often co-located with, and thus may help maintain, the only retail



280 Midgley

outlet in a village/urban estate, as well as acting as

a communal focal point (PIU 2000). However, PIU recommendations extended beyond

the development of universal banking. 'Network banking' (non-basic banking) transactions were seen as providing a new focus for Post Office business

and the means to maintain the network's viability (PIU 2000). The computerization of welfare pay

ments also allows for electronic banking services to be offered to individuals with non-basic accounts. Network banking arrangements with some of the largest high street institutions began in 2001 and it

was anticipated that these arrangements would pro vide increased Post Office business.

Yet, the original policy rationale for providing network banking services appeared based on assist ing financial institutions' rationalization of branch networks and access to branch-based service provision:

This makes it easier for the banks to rationalise their networks in the face of competitive pressures;

maintains services for bank customers, particularly in rural areas, who wish to conduct transactions over a counter; and represents a new source of revenue for the Post Office. (PIU 2000, 70)

The statement immediately raises concerns about

policy priorities surrounding financial inclusion and the role of the Post Office. Consequently, the development of universal banking suggests that financial inclusion was not in itself a central aim but a concept used to support and advance wider policy reform focused on institutional modernization (the welfare system and the Post Office). The next section considers the implications of this for financial inclusion and the active participation of individuals

within the financial system.

An inclusive transition?

Entry Between April 2003, when universal banking began, and to November 2004, 1 025 000 new accounts were opened, of which 87 per cent were accessible through the Post Office network. This meant that the total number of basic accounts operating in Britain

was 5 531 400, of which approximately one-third (1 858 200) were accessible through the Post Office (British Bankers Association 2004). In turn, over three

million POCAs had been opened. The figures suggest that universal banking services available through the Post Office have provided a mechanism for individual entry into the financial system and assisted a transition

from exclusion to basic product ownership. However,

the envisaged 'migration' of basic bank account owners into the financial mainstream - being 'upgraded to more fully-featured accounts' (British

Bankers Association 2004) - is limited with only 85 000 accounts upgraded between April 2003 and November 2004.

Practising inclusion If the intention is that individuals be given access to the financial system, then this must incorporate not just a means of entry but also a means of

participation, in essence the social and cultural practice of inclusion. Opening a universal banking product signifies that an individual has entered the financial system, but this does not equate to active participation. For example, the range of services

available for universal banking customers' use sustains different forms and levels of participation

when considered in relation to current account owners. Differential social practices and participation do not appear to be universal banking policy concerns. Postcomm commented that the ability of POCA owners to withdraw their payments in stages (rather than in one complete transaction as was the case before automation) may 'help their budgeting' (2003, 15). This suggestion seems to associate POCA ownership with constructions of limited personal financial capacity regarding money management, rather than recognizing the budgetary skills required to manage a low income in the first place.

Advancing financial inclusion through universal banking creates a hierarchy of customers and serv ice provision, occurring wholly within the financial

system - rather than through an insider/outsider dualism - producing increased nuances of polariza tion. Despite the financial industry's condemnation of the original Universal Bank proposal based on the stigmatizing effects of consigning individuals

without mainstream financial products and/or with low incomes to such an institution, the position of universal banking customers within the financial system in effect remains relatively similar to those associated with the earlier proposal. Compared to current account owners, those individuals who for

whatever reason use a basic bank account experi ence a more constrained form of access to the finan

cial system. This marginalization is even greater for POCA owners. Moreover, policy and industry actors terming accounts as 'introductory' or 'basic' not only imply that individuals are learning about the

financial system and have lower financial abilities,




but are constructed as being financially and socially

different, through not possessing 'ordinary' accounts

which 'most people' have (FSA 2002, 4, 7). Since universal banking services began, post

offices have become the primary location for newly included individuals' financial activities. Conse

quently, basic account owner's contact with their

providing financial institution may be limited and the development of a customer/service provider relationship foregone. Benefits of such a relationship

include access to information and advice about other products and services, such as regulated credit, and their subsequent use. Participation, and hence inclusion, will therefore be mediated by indi

viduals' 'trusting' relationship with local post office

staff.3 Trust issues were highlighted by the regulator

(Postcomm 2003) and media (Jones 2003) following concern that 'rogue' subpostmasters were encourag ing people to apply for POCAs in order to 'support'

their business and discourage applications for more inclusive basic bank accounts, suggesting branch closure if the latter were used. Indeed, as Post

Office branded banking products are launched

(loans, credit cards and insurance) the potential for

biased mediation of financial experiences is noted:

'Subpostmasters will be given a greater incentive to

make a profit by increasing the element of pay

based on product sales' (Postcomm 2003, 21).

Particularistic inclusion Universal banking services may encourage a parti cularistic form of inclusion. Certain social groups and communities, often the most vulnerable who have lacked access to the financial mainstream, are

being offered a different form of access, and in turn

different products and services, by virtue of their

relationship to the Post Office. There are social,

particularly gendered, implications. Individuals most

reliant on welfare payments for their incomes are the elderly, the disabled and lone-parents, with a higher probability that many are women. Taken

together with the higher proportion of women who use the Post Office network - in comparison to men

(PIU 2000) - gendered consequences for inclusive

financial participation inadvertently arise. Women are more likely to be affected by the policy, and as a result, are more likely to experience the constrained forms of access to, and participation within, the financial system. This is exacerbated within a

household context as women within low income

households generally take responsibility for household financial management (Land 1983; Morris 1990;

Goode et al. 1998). Thus, while universal banking

ameliorates some marginalization, it supports the

continuation of particularistic inclusion within both the financial system and the household (Midgley 2004).

Placing inclusion The promotion of universal banking through the

Post Office was primarily based on the network's

'reach' and 'convenience'. However, if access to the

financial system is promoted through spatial

accessibility then there is a need for guaranteeing that the Post Office will retain a local presence. In

this respect the Post Office is portrayed (by itself

and government) as being different to other financial service providers.

By examining the institutional geography of the

Post Office and policy affecting the rural and urban networks, a spatial dimension to inclusion becomes

apparent. The attrition of the post office network is

well documented (PIU 2000; Postcomm 2001a 2003). Closure rates have been geographically variable, and so too have the various responses by govern ment and the Post Office towards the network.

The PIU report (2000) emphasized maintaining 'convenient access for all' to post offices as a pri

mary objective. This included a five-year protection on avoidable4 rural post office closures, subse quently endorsed by government, requiring the PO to maintain the rural network from 2001 to 2006

(Byers 2000). One early rural programme was the Sub-Post Office Start-Up Capital Subsidy Scheme, which provided grants to help community or vol

untary group initiatives to maintain/re-open a post office where one had recently closed/was closing, by helping with relocation/refurbishment costs (DTI 2001 2004b; Postcomm 2003).

The main rural initiative was the Social Network Payment, enabling government to require the Post Office to maintain a rural branch network to pro vide services of 'general economic interest', includ ing universal access to cash and basic banking services (Timms 2003). The scheme's parliamentary announcement focused on the social role played by the Post Office network in rural communities:

In many places the post office is also the village shop, the local community centre, the business exchange and the bank . . . This multi-million pound package shows our commitment to the rural post office network. The money announced today will ensure that the village post office remains firmly at the heart of the community. (Hewitt cited in DTI 2002)



282 Midgley

The rural network's viability and future support beyond 2006 has been left far from certain, signalled by the industry regulator's comment that:

The support packages aim is to underpin the policy of no avoidable closures and so ensure the continuation of Post Offices services in rural communities during the transition of benefits to direct payment. (Postcomm 2003, 39, emphasis added)

The direct linking of the support payment with a transition period had not been made previously.

Recognizing that without state support much of the current rural network would face closure the

Government announced extra funding for the rural network (2006-2008) following a lengthy and confidential consultation with the regulator (Hewitt 2004). This funding is intended to allow the out comes of 'pilot activities' to find innovative ways of rural service provision (including community purchases) to be evaluated, and more effective and efficient ways of rural service delivery developed. Proposals regarding rural service provision via alternative methods, especially to marginalized and vulnerable populations (i.e. aged, lone-parents, those without private transport), have continually appeared in reports and policy documents (PIU 2000; Postcomm

2003; Hewitt 2004). Such policy discourses and support programmes expand social contractualism, placing reliance on rural communities - as active citizens - to become responsible for maintaining service provision. In policy discussions, the capacity for rural communities to take on this responsibility is recognized, lauded, even assumed, yet conversely the participative capabilities of the marginalized are not (PIU 2000; Postcomm 2001b). This highlights the problematic nature of using the Post Office in

the face of an uncertain future to provide access and inclusion to vulnerable rural populations when responsibility may fall on the very same to maintain the service due to their dependency on this provider (Midgley 2004).

A contrast is seen in the implementation of the PIU recommendation to 'reinvent' the urban net

work. The aim of reinvention is to offer convenient access and improve service quality. However, rein vention is a positive portrayal of what is effectively a closure programme, reducing the urban network

by approximately one-third (equivalent to the clo sure of 3000 offices). Reinvention allows branch closures where the Post Office decides it needs fewer offices (Postcomm 2003; DTI 2004c). Rein vention has meant that for the first time the urban

network has declined at a faster rate and is smaller in size than the rural network: 8346 rural offices and 9068 urban offices existed in 2001/02, by 2003/04 the network size had declined to 8142 and 7753 offices, respectively (Postwatch 2004b).

Reinvention closures are carried out in line with the code of practice agreed between Post Office Limited and Postwatch, the consumer watchdog (Post Office Limited and Postwatch 2002). Despite the code's contents, the ordering of issues considered in urban closures suggests the prioritization of network density, including proximity and convenience of other branches, over community and customer needs (DTI 2004c). Consequently, criticisms of limited consideration of community representations in clo sure consultations were noted during reinvention's parliamentary approval (Hansard 2002) and subse quently (Postcomm 2003; Postwatch 2004a). The programme has important implications for the suit ability of the Post Office in providing an institutional presence for financial inclusion.

'Exceptions' to reinvention are deprived urban offices. A support fund has been created, following the 'community maintenance' arguments that sub stantiated the rural network payment. Here financial inclusion - the provision of cash access and basic banking facilities - is directly associated with the support package, in addition to wider inclusion pri orities, such as offices anchoring other retail services in the community (Byers 2000; PIU 2000; Timms

2002). The aim is to maintain (through improving) services in offices that would be at risk of closure due to limited commercial viability or security risks (Postcomm 2003).

Future institutional problems? The ability of the Post Office to advance financial inclusion, by acting as a substitute provider through its network and basic banking agreements, may be restricted. This is particularly evident as the Post

Office launches an increasing number of financial products under its own 'brand' (although supplied by other financial institutions) and moves towards becoming another competitor in the retail financial market. Its aspirations are to replicate the success of supermarket entrants in this market (Postcomm 2003). Notably, since network banking arrangements began in 2001 participation by other high street institutions has been limited.

The regulator has remarked on the reluctance of mainstream financial institutions to sign up to the network banking agreements, noting that having




made basic bank accounts accessible and provided for the cost of POCA 'some [institutions] are reluc tant to contribute still further to the Government's financial inclusion agenda' (Postcomm 2003, 13). As banking forms the basis of future Post Office business, the reticence of the banking industry to assist a competitor is, perhaps, understandable.

Moreover, the selective use of financial inclusion terminology to condemn the mainstream financial industry can be seen as an attempt to deflect atten tion away from future uncertainties surrounding the Post Office network, and the role banking will play within Post Office business.

Conclusions

The recent policy responses to financial exclusion have added to the complexity of social and spatial processes affecting participation within Britain's financial system. This paper has highlighted how the introduction of universal banking services and the role of the Post Office in assisting financial inclusion have contributed to this complexity.

An important question is whether financial inclu sion was ever really a central aim of universal bank ing. First came the commitment to modernize the

welfare system, and only through delays and increased costs did proposals emerge for the direct transfer of

welfare payments into accounts. Subsequently, Post Office modernization became a new priority. This was based on maintaining convenient access to services, protecting rural and 'reinventing' urban network provision, accompanied by a new Post Office business strategy with banking services at its core. What started off as a concern to widen finan cial inclusion by requiring welfare recipients to pos sess a basic banking product became tied to finding new business to maintain the viability of the Post Office network.

The multiple policy objectives that now surround universal banking means that for those experiencing financial exclusion, inclusion within the financial

mainstream remains far from assured. One problem lies in the policy response to financial exclusion.

This essentially seeks to provide a means of entry to the financial system, marking an individual's transi tion from 'exclusion' to 'inclusion'. Treating exclu sion/inclusion as a simple binary fails to recognize the varied and complex ways in which people expe rience and participate in the financial mainstream. Simply owning a POCA does not necessarily mean that welfare recipients will enjoy further access to

other financial products and services. In any case, participation within the financial system goes beyond mere product ownership. For example, those who take up a financial product with, say, a bank engage in a customer/service provider relationship, and sub sequently become more exposed to, and experienced

with, such institutions and hence more included. Universal banking policy risks delivering a partial

and particularistic form of financial inclusion with consequences that impinge on both social and spatial dimensions of accessibility. For example, enhanced accessibility to the financial system through univer sal banking is likely to be gendered. Women are

more likely to access welfare payments through the Post Office and are thus likely to experience a more constrained transition to inclusion in the financial system. On the other hand, simplistic spatial con structions of exclusion are applied to rural, urban and deprived urban areas. These lead to different policy responses premised on different communities' physical proximity, and access, to universal banking services provided by the Post Office network in these types of places. As a result, substantial support packages have been provided to maintain service provision in rural and deprived urban communities, while the urban network is radically rationalized. Consequently, as policy has attempted to address financial exclusion, new geographies of financial inclusion and exclusion have been produced.

Acknowledgements

My thanks go to referees for their comments on earlier ver

sions of this paper. Presented under Economic and Social Research Council postdoctoral fellowship PTA026270322. The views expressed remain my own.

Notes

1 'Post Office' refers to Post Office Limited, a wholly owned subsidiary of the UK Government-owned Royal Mail Group plc, responsible for the network of post offices and service provision. Whereas 'post office' denotes an individual office.

2 The Benefits Agency paid the Post Office for each welfare payment cashed, of which a proportion was passed on to

the respective subpostmaster. 3 Here knowledge and trust concerning financial products

and practices relies on personal interaction. 4 Avoidable closures exclude closures where no-one is pre

pared to take over from a departing postmaster, no suitable

premises remain/are identified, or where an associated business is no longer commercially viable (DTI 2004c).



284 Midgley

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Documents

Financial Inclusion, Universal Banking and Post Offices in Britain